Sunday, July 31, 2011

Sovereign Debt Concerns

In July, sovereign debt issues again took center stage.

For months, fears of Greece defaulting on its debt and triggering a series of dominoes have hung over the market. After some jitters in the first half of the month, a plan was finally put in place to exchange much of the Greek debt for longer maturity (15-30 year) debt. This seems to have resolved the situation, at least for now, and sparked a short-lived relief rally.

Meanwhile, on the home front, the possibility of default on our own debt continued to increase. Lacking an increase in our debt ceiling, the government has been short of funds since May. However, it has managed to finesse the situation with the use of smoke and mirrors. August 2 is the supposed date when it would no longer be possible to keep up the charade. Faced with the possibility of

Saturday, July 23, 2011

Since owning a home is often a decades-long commitment, it is important that we include inflation in our housing analysis. This follow-up to 100 Years of (nominal) Housing Price History looks at the long-term history of inflation-adjusted residential real estate prices in the United States. Interestingly, you could make the case that, after adjusting for inflation, the long-term trend for housing prices has been essentially flat.

Real, Inflation-Adjusted, Housing Prices Since 1900

Inflation-Adjusted U.S. Home Prices Since 1900

Above is a graph (click to enlarge) reflecting inflation-adjusted prices for residential housing in the United States since 1900. The graph is based on Robert Shiller's housing price index, which I have summarized to yearly data. His index attempts to

Monday, July 11, 2011

Here's an easy way to approximate what $5,000, $20,000, $50,000, or any other amount will grow to in 5 years. It works for bonds, CDs -- any investment that you expect to compound at a fixed annual rate. You can also use this graph to ballpark the results for multiples of 5 years -- e.g., 10, 15, 20 or 25 years.

NEW! Try my new interactive bond interest calculator. It does the same calculations as the graph below, but for any number of years, and for any interest rate. Then come back to this post; graphs are still better for seeing the big picture.

Approximates Results from the Calculator/Spreadsheet

The interactive bond calculator will give you precise results. However, since the calculator may not work in some browsers, I'm providing this graph as a way to approximate the results.

What Will my Bond or CD be Worth in 5 Years?

The graph above (click to expand) shows how rapidly a bond or CD of any denomination will grow in five years. Given an interest rate, indicated on the horizontal axis, the "multiplier" on the vertical axis tells you what your investment will be worth in 5 years (assuming earnings reinvested each year, and no taxes). The multiplier is the same regardless of how much money you invest. For example,

Monday, July 4, 2011

June, 2nd Quarter, Year-To-Date & Recovery-To-Date Review

European sovereign debt issues and the imminent ending of quantitative easing continued to weigh upon the market throughout the month. As a result, the downtrend that started last month continued. By mid-month, the market had been down 6 weeks in a row. Still, after all was said and done,